An open economy

The Political Economy of Poverty, Equity and Growth: Five Small Open Economies was published by the World Bank and Oxford University Press in the nineties. The book edited by Ronald Findlay and Stanislaw Wellisz included an interesting assessment of the politics and economics of Malta. Although clearly overtaken by events, it is an interesting historical perspective on Malta's economic development pre-European Union. The following are the conclusions reached by the authors:

During the long rule of the Labour party, Malta’s economic record was one of successful export-oriented growth in manufacturing and tourism, which allowed the country to create a strong welfare state. Although statistics are meager, Malta seems to have had a remarkably equitable income distribution, with no visible signs of either luxury or poverty. In the export industries, Maltese entrepreneurs collaborated easily with international corporations.

State enterprise in Malta consists, on the one hand, of banking, transport, and public utilities that manage to be profitable because of their monopolistic position and, on the other hand, of capital-intensive projects heavily cofinanced by foreign partners, mainly Libya. As a consequence, these low-yielding ventures are a great drain on local resources, at least in the short run. Joint Maltese–Libyan companies have been formed for the express purpose of supplying the Libyan market. Libya is now Malta’s fourth largest customer (after Germany, the United Kingdom, and Italy) and is the only country with which Malta has a large positive trade balance. At least up to now, Malta has been able to generate business for such ventures as shipbuilding by astutely exploiting political rivalries among world powers.

The fact remains, however, that during the years of Labour rule Malta was highly dependent on donor aid and on economic contracts granted for political reasons—as in the case of its contracts with Libya. Moreover, Malta’s restrictive trade policy was a serious obstacle to a sustained increase in prosperity. Instead of attempting to make the island the Mediterranean marketplace at the crossroads between North Africa and southern Europe, Maltese citizens did as much shopping as they could in Sicily, which was also the source of much smuggling to Malta. Exports of services and higher value added manufactures were also hindered by this policy.

The Nationalist government that took office in 1987 is cautiously moving toward a freer, more open economy and plans to make Malta into a center of offshore business. New incentives to attract foreign investment have been put into place. But controls have been difficult to remove, for over the years vested interests have grown up around trade restraints and internal regulations.

The Economy of Malta - Wikipedia